Startups look to cash in on healthy processed food boom

01 Sep Startups look to cash in on healthy processed food boom

Innovation in processed food has emerged a focus area for several startups looking to cash in on a booming market for healthy, organic and ready-to-eat food items with a range of products, driven by changing consumer preferences.

Some of these ventures such as Bangalore-based YCook and Soulfull and Delhi-based Zea Maize have gained investor attention with their protein-rich and quick-serve foods.

“People are shifting from grain-based to protein-based diet, as reflected in prices of rice and wheat that haven’t increased in the same manner as fruits, dairy, vegetables and pulses,” said Jinesh Shah, founding partner at venture capital firm Omnivore Partners that invested in YCook India this April. “Also, for the first time, Indian consumers are willing to pay a premium for quality and improved taste of food,” he said.

Launched by ex-banker Janardhan Swahar and his schoolmate Vijay Reddy four years ago, YCook offers sweet corn kernels and cobs, baby corn, chickpea, and chutneys that stay fresh for 12 months without preservatives and refrigeration. It plans to add baby potatoes and boiled peanuts, which will hit shelves in Delhi and Kolkata, respectively, by November.

“Sweet corn is an exothermic vegetable with a shelf life of less than three days. We decided to bridge this gap with our innovation. Our see-through packaging for cobs is microwavable and visually appealing that makes people pick it up,” said Swahar, managing director and chief executive officer at YCook.

Market experts expect small and medium-sized brands to play a key role in India’s growing food processing business.

“Food processing has gained momentum in last five-six years especially in urban India, thanks to rapid urbanisation that’s increasing distance between consumption and production hubs. Over next 15-20 years there’s a wide space for small, mid-sized brands to play their own game without competition,” said Ankur Bisen, senior vice-president for retail at research and consulting firm Technopak Advisors.

Technopak estimates the processed foods market in the country at Rs 6,85,000 crore, or 49% of the total food industry. While commodity-based processing holds two-thirds of this market, value-added processing is growing faster, at 10% a year. High growth segments include dairy, health foods, ready-to-cook/eat, organic foods, fruit juices and convenience foods, it said.

Prashant Parameswaran, hailing from an agrarian background, launched Soulfull in December 2012. It sells healthy, sugar and preservative-free breakfast cereals from ancestral grains such as ragi and instant dosa mixes.

Technopak insights peg the breakfast segment at Rs 560 crore, growing at a CAGR of 15%.

Both Soulfull and YCook plan to enter the ready-to-cook market early next fiscal. The former will use fox tail millets (navane) to make quick nutritional meals, while YCook’s Swahar said it has a series of lentil-based meal concepts on the anvil

Delhi-based Zea Maize, which retails its brand of gourmet popcorn 4700 BC at company-owned kiosks in shopping malls and to corporates, plans to take its products to high-end grocery stores by the fiscal end, starting with National Capital Region.

“In India people eat in limited quantities of popcorn compared to the US. No one thinks of taking popcorn home. We want to break this perception since it has a long shelf life,” said Chirag Gupta, co-founder and chief executive officer at Zea Maize. Its offerings include chocolate, cheese, potpourri and caramel popcorn each with a handful of flavor variants, packed in zip lock bags or tins priced between Rs 65- 400.

Investors believe the story has only started and there is huge potential and opportunities in this market. “I believe new brands will emerge that will add to investment activity,” said Shah of Omnivore Partners. “Factors required for VC exits are there, hence these businesses are venture scalable and investable.”

Venture Intelligence data shows that so far in 2014 (year-to-date), $119 million has been invested across eight investment deals and eight merger and acquisition deals valued at $414 million have been announced. In 2013, the space attracted $234 million in venture capital and private equity money across 19 companies and $383 million across 13 M&A deals.